Short-sighted stumble or smart strategy? Toyota’s hybrid bet paying off in Canada

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As rivals raced to switch to battery electric, Toyota stuck to its own road.

Over the past decade or so, Toyota has mainly focused on hybrids instead of battery-electric vehicles (BEVs), arguing that, even though hybrids produce some tailpipe emissions, they are a better way to reduce emissions overall since more people can afford them.

While this initially looked like a fumble and critics said Toyota was falling behind, the move is looking more like a calculated strategy, as BEV prices remain high and sales growth has slowed.

Sales of conventional hybrids increased by 67.2 per cent in 2023 compared with 2022 and sales of plug-in hybrid electric vehicles (PHEVs) increased by 80.5 per cent, according to Statistics Canada. At the same time, sales of battery-electric vehicles (BEV) increased by 41.5 per cent. An AutoTrader report from April showed BEV interest dropped for a second year in a row, while purchase consideration for a hybrid or PHEV has been increasing.

Toyota has been in the hybrid game a long time. After a drive of more than 1,700 kilometres through five provinces to explore Toyota’s past in Canada, I was in front of a 1999 test model of the first Prius on display at the Canada Science and Technology Museum in Ottawa. Last month, 43 per cent of Toyota and Lexus models sold in Canada were traditional hybrids, including the Prius, now in its fifth generation.

The automaker – which took journalists on a multi-stage drive from St. John’s to Victoria to celebrate its 60th anniversary here – has faced criticism for being slow to embrace BEVs. Instead, the company has been developing hydrogen fuel cells and focusing on hybrids, both conventional and the plug-in variety.

Toyota sold the first Prius in Canada in 2000, and first offered the hydrogen-fuel-cell Mirai in 2018. But it didn’t launch its first BEV, the bZ4X, until 2022 – 11 years after rival Nissan sold the first fully electric Leaf in Canada.

Of the 24 current Toyota models, only four are considered zero-emissions vehicles (ZEVs) by Ottawa, meaning they qualify for federal rebates: the bZ4X, the Mirai and two PHEVs – the Prius Prime and the RAV4 Prime.

But of the remaining 20 models, 15 are either available only as conventional hybrids or have available hybrid versions.

A quick primer: Conventional hybrids run on gas and don’t need to be plugged in. PHEVs run mostly on battery power until the charge runs out – for Toyota’s PHEVs that’s about 70 kilometres – and then the gas engine kicks in.

Unlike hybrids and PHEVs, BEVs use no gas and produce no tailpipe emissions.

While about 40 per cent of Toyota and Lexus models sold in Canada in August were conventional hybrids (7,943 of 19,103 vehicles), 19 per cent (3,667) were zero emission vehicles – that includes PHEVs.

Even though BEV sales generally continue to rise, other carmakers, including General Motors and Volvo, have recently tapped the brakes on plans to be all-electric by specific dates. Some, including GM and Volkswagen, now say they want to include more PHEVs in their lineups.

Toyota has never made all-electric promises, said Scott MacKenzie, director of corporate and external affairs at Toyota Canada.

“There are obviously some people who wanted [EV adoption] to go faster and they’re very passionate about it,” MacKenzie said. “But I think we just need to be realistic about the outcome in the short to medium term. Just because something works for you doesn’t necessarily mean it works for everyone.”

Hybrid nation?

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I was on the second wave of Toyota’s cross-Canada drive, starting in Halifax. We stopped at long-standing Toyota dealerships in Nova Scotia, New Brunswick and Quebec.

So, how interested are customers in those provinces in going electric?

“We saw quite an influx of customers looking for electric vehicles like two, three years ago, and then all of a sudden that kind of faded away,” said Eric Blanchard, general manager of Acadia Toyota in Moncton. “Lately we don’t hear much about people looking for electric, but we hear a lot about [PHEVs]. They’re very popular in this area.”

There’s currently a two- to five-year waiting list, depending on the model, Blanchard said. “If we could get more, we would sell them, absolutely.”

And traditional hybrids?

“I’ve been here since 2005 and we’ve been selling hybrids on a regular basis since then,” Blanchard said. “Lately they’re even more popular. People coming here looking for a vehicle; if we have [a hybrid option], they’ll go hybrid.”

At Lévis Toyota, near Quebec City, a hydrogen Mirai – marked down to $45,995 from $54,995 – has sat on the lot for about a year.

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That’s because Quebec has only one hydrogen filling station and it’s not always up and running, said general manager Jacques Emond.

“They are amazing cars. In five minutes, you have like 500 kilometres [of range],” Emond said.

While BEVs continue to grow in popularity in Quebec – they counted for 21.5 per cent of new vehicle registrations in the second quarter of this year, ahead of British Columbia at 16.8 per cent – Emond hasn’t seen a huge demand for the bZ4X. In part, that may be because customers associate EVs with other established EV brands, like Tesla.

“Some bought them, but they don’t know [Toyota as an EV manufacturer] really well,” he said. “I think Toyota customers like the hybrid technology more.”

Last year across Canada, Toyota sold 4,179 bZ4Xs. To compare, it sold 74,688 RAV4s, including 30,741 RAV4 hybrids and 8,208 RAV4 Prime PHEVs.

MacKenzie said conventional hybrids sell at similar rates across the country and are “fairly popular everywhere” while the most PHEVs are sold in B.C., Quebec and Ontario. Most of its BEVs are allocated to B.C. and Quebec, the two provinces with their own ZEV mandates.

Moving target?

Over the next 11 years, Ottawa will require car companies to sell an increasing percentage of ZEVs – starting at 20 per cent of new passenger car and light-truck sales in 2026 and rising to 60 per cent in 2030 and then 100 per cent in 2035. The regulation will allow companies to sell a percentage of PHEVs – although traditional hybrids won’t count.

Quebec recently announced draft legislation to ban sales of all new gasoline vehicles, including traditional hybrids and PHEVs, by 2035.

Making that switch will be tough without a lot more charging infrastructure, MacKenzie said.

“I don’t see the necessary conditions in place in Quebec, or frankly anywhere, that are going to allow a 100-per-cent adoption of zero-emissions vehicles,” he said. “It’s not there today and we don’t see a realistic plan to get there. That’s not just public charging infrastructure, it’s home charging infrastructure ... it’s the electricity supply and delivery. I don’t think a lot of people are going to buy a [BEV or a PHEV] if they can’t charge it.”

But right now, the price is the top reason some consumers balk at BEVs, he said.

“It’s your monthly payment that is driving a lot of the purchase decisions,” MacKenzie said. “That includes things like insurance – what you’re spending on a car every month. Most people have a budget and if it’s in their budget, they can do it – if it’s not, they can’t or they won’t.”

While BEVs generally cost less to run and maintain than gas-powered vehicles, they typically cost at least $15,000 more to buy.

That will change as battery costs decrease – eventually, BEV prices should be comparable to gas-powered cars, MacKenzie said. But at the moment, there’s still a role for hybrids and PHEVs, he said.

“When costs go down and you have a greater investment in infrastructure, you’ll see [BEV] sales continue to expand,” he said. “Is it going to be at the same rate that maybe some governments want them to? I don’t see that, but they’ll absolutely increase over time.”

The writer was a guest of the automaker. Content was not subject to approval.